S&P explained that it had to cut Athens' rating because of the chances that the country would likely default on its debts at least once by 2013.

Greece lamented the S&P action, claiming that the ratings agency ignored the Greek government's efforts to secure funding. The ratings downgrade may affect the government's efforts to convince the Greek opposition to accept another round of austerity measures in a bid to meet the European Union and International Monetary Fund's condition for the $159-billion (EUR 110-billion) bailout package.

With this development, S&P said it was unlikely that the EU would require a restructuring of Greece's debt, but would likely treat it as a default due to its less favorable terms for lenders.

European banks which hold maturing Greek debt bonds are negotiating a deal in which they would purchase new Greek bonds. The Greek Ministry of Finance, which lamented S&P's downgrade, pointed out that some banks, such as Credit Agricole, favored extending the country's debt. Extension of the debt would be vital to the release of a second bailout for the nation and grant it more time to sort out its debts.

EU leaders are slated to tackle a new deal for Greece in a summit on June 23.

Meanwhile, Germany proposed that private sector bondholders accept some losses on their Greek bonds as a condition for a wider rescue package for Greece.

The S&P downgrade came less than two weeks after another ratings agency, Moody's Investor Services, cut Greece's rating three notches lower to Caa1 and hinted of more downgrades in the future.